VAT Guidance – Catering Contracts November 2011 Greg Watson

Background  Contracts entered into with external catering suppliers can be complex and can lead to VAT management issues.  Important that Input VAT and Output VAT are not netted off  Also important for correct financial reporting that income and expenditure are not netted off.

VAT Efficient Contract Structure  Contractor bills school for service with VAT at standard rate – acts as principal  School recovers VAT paid in the usual way.  Contractor may collect income from pupils – acts as agent  Supply of meals by school incidental to education, hence outside scope of VAT and available to offset cost of the meals to the schools budget.

Schools Responsibilities  Correct amount of VAT should be declared to HM Revenue & Customs.  Particularly for Output VAT on staff/visitors meals.  Cost of Staff free meals needs to be coded to A252/E08.  Suppliers responsibility to provide correct and fully compliant VAT invoice.  If insufficient detail then should be requested.

Receipt of catering income:  Where school receive catering income directly, staff/visitor income should be credited to A872 so that Output tax is collected. Responsibilities fulfilled.  Where the catering company acts as agent by collecting income on school’s behalf a change in the way we process the invoice is required.

Accounting Implications:  Please refer to Appendix A.  Schools pay through Accounts Payable £3, & VAT £ – Total £4,  Need additional journals to account for Output VAT and full expenditure and income received

Accounting actions :  Enter invoice figures in ‘Catering Calculator’  Pass two Cash Book Journals and reconcile bank entries  VAT Submittal now includes Output tax  Correct VAT claimed and paid to HM Revenue & Customs

Summary:  Schools accounting responsibilities now fulfilled by adopting amended process  Individual SFOs will work with schools to instigate where required  Information available on hgfl.org.uk